Why your retail business needs a price ladder…

This blog is the 2nd part of my series of 3 articles focusing on retail pricing. The first looked at price, promotions and positioning. This feature will focus on the importance of having a price ladder within your assortment. The final blog in the series will look at price elasticity, both at the item level and across the assortment.

What is a price ladder?

Retailers who understand their positioning should have prices that offer the target customers choice within their budget for products that meet their mission.

Often this kind of product strategy is referred to as good, better, best; the value-adding attributes of each item become more compelling as the price increases, thus you take your ideal customer up the rungs of the price ladder.

The customer probably thought that the entry price point item, the “good” item was OK – they’d have been happy with that. But then they see the “better” item and think “ooh – that’s worth an extra £x”! They are now climbing the ladder. If you then you show them the “best” item they’ll be delighted – and certainly keen to climb to the next rung.

Of course it doesn’t continue indefinitely – the customer may step up to a rung where the price point is simply too high, if so they drop back to the rung of the ladder they can afford, or which they perceive to meet their value expectations for the item.

What is the benefit of the price ladder?

If your retail business typically realises an average 60% gross margin then of course the higher up the ladder the customer goes, the more they spend, increasing both cash delivered margin and average transaction value (ATV).

What major retailers demonstrate effective use of the price ladder?

Now you are aware of it you will observe this across a very wide range of retailers. One great example is IKEA. If you’ve ever been to an IKEA store you may well be familiar with their “market place” – the carry out items merchandised after the room sets.

Taking a simple example such as crockery, if you were to visit the fixture you would first see the basic plates. These are fine, and offer exceptional value for money. They serve a purpose and if you want the cheapest option you can’t go far wrong. However, merchandised immediately adjacent to the basic range, just along the fixture, and usually to the right, is a slightly better proposition. A higher price, but either the product quality appears to be better, or the finish, size etc. Of course moving along the fixture again the next item is better still, with an increased price to match. Before you know it you’re buying an item at more than twice the entry price point!!! Does that sound familiar?

How to implement an effective price ladder

The key things to consider if you want to implement a price ladder are:

  • What is the price range (minimum to maximum) that my ideal customer would expect to pay for this kind of item?
  • Set the prices so the steps (the rungs of the ladder) are fairly equally spaced – try to ensure all your items deliver a consistent % gross margin
  • Merchandise the product with the cheaper items to the left and with the more expensive to the right
  • Make sure the product packaging / POS clearly demonstrates the additional value-adding attributes to the customer if this is not abundantly clear

To find out how well it can work for your business will require some level of trial and error. A good price ladder that is well merchandised will enable customers to up-sell themselves with no intervention from sales staff – what retailer could ask for more?!

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About Clare Bailey

Clare Bailey, The Retail Champion (formerly Clare Rayner), is one of the most well-known and respected retail experts in the UK. With unrivalled knowledge in retail, high streets and consumer matters, she offers unbiased, independent content – whether engaged as a professional speaker, for broadcast media, or for a written feature. Clare is a business woman, entrepreneur and founder of several small businesses. Having been born into a family of successful business owners, it was inevitable that she’d eventually jump off the corporate treadmill and step out on her own! Today her brand portfolio includes The Retail Champion, The Retail Conference, the Future High Street Summit and the Support for Independent Retail campaign. In addition, she is co-founder of Mobaro Retail UK and a non-exec director of Beed Virtual Assistant Services. Having started her career as a fast-track store management trainee for McDonalds, she went on to work with leading retailers such as M&S, Dixons and Argos. She moved swiftly into management roles before being headhunted into senior consulting roles with global software giant SAP, and international management consulting brand, Accenture. Her corporate background in senior retail, consulting and technology roles, coupled with her experience of creating and running her own business, has enabled her to be equally capable whether consulting to global brands or micro businesses. This unique blend has not only positioned her as a leading expert in all things retail, but has enabled her to add meaningful commentary and insight to the debate around the future of the high street, and, how technology is driving fundamental change in the way consumers, and businesses, interact. Clare has become an influential voice in her field, which has resulted in her becoming a regular media contributor and sought-after conference speaker. Often seen on Good Morning Britain, BBC Breakfast, Sky News, and Chanel 5 (to name a few), Clare speaks on a myriad of retail, high street and consumer issues – but is particular adept when it comes to explaining the context behind retail trading results, newly released data, and government stats, in a palatable and informative manner. In addition to broadcast and conference speaking, Clare is the proud author of two best-selling business books published by Kogan Page - The Retail Champion: 10 Steps to Retail Success, published July 2012 and How to Sell to Retail: The Secrets of Getting Your Product to Market, published February 2013. She has provided contributions to various academic texts, including Retail Marketing Management (published by Pearson). With an engaging, conversational yet informative style, Clare writes for press and content agencies, providing features, articles, blogs and opinion pieces as well as contributions to white papers and reports. However, when the situation demands a more serious style, Clare can deliver - In 2016 she wrote an extensive report for a major insurance and risk law firm, as a retail expert witness, to support a public liability suit. She found that project particularly enjoyable as it played well to her strengths – assimilating large amounts of data and information, identifying the key points and articulating that in an understandable manner. When not on TV or speaking at conferences, Clare’s “day job” sees her supporting consumer-facing businesses through her consultancy services. When asked to describe what she most loves about retail consulting it is typically the opportunity to “dig deep”, getting “under the bonnet”, in order to leverage the business data to uncover the insights that lead to “lightbulb moments”. She also loves working on business change programmes that centre on improving the processes and systems to increase profitability by supporting more rapid, better informed decision making, improving the customer experience, or simply by become more efficient and streamlined. In this respect she considers herself a “business engineer” with a brain that works like a relational database! Due to her years of experience, her logical, objective approach, her quick, rational thinking, she is known for being able to cut through complexity, seeing right through to the crux of issues, finding creative solutions that others may have overlooked. As if all that wasn’t enough, Clare is a working mum, juggling a home life in rural Lincolnshire with her partner, their 5 kids, 4 cats, and geriatric Labrador! For all enquiries, contact Clare directly on 01727 238890 or email champion@retailchampion.co.uk.
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5 Responses to Why your retail business needs a price ladder…

  1. Pingback: The benefit of understanding price elasticity… | Clare Rayner: The Retail Champion

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